Low inflation vs high growth: RBI’s December policy dilemma

The Reserve Bank of India is set for a crucial monetary policy meeting from December 3 to 5, where it will decide whether to cut interest rates further or keep them unchanged. With retail inflation falling to unusually low levels and economic growth touching an impressive 8.2 percent in the second quarter, the central bank faces a finely balanced decision.

India’s headline inflation rate fell to 0.25% in October 2025, marking the lowest level in several years. The drop was driven mainly by a sharp year-on-year decline in food prices, especially vegetables. Overall, inflation also recorded a month-on-month decline of 0.25% from September to October.

However, other experts argue that the central bank may prefer to hold rates steady. They point out that growth has been surprisingly strong, aided by fiscal discipline, higher public investment and reforms such as GST rate cuts. According to them, keeping rates unchanged would reflect confidence in the economy’s momentum and help avoid unnecessary risks.

The RBI has already cut rates by 100 basis points since last year before pausing in August, and the current repo rate stands at 5.5 percent. Several research reports describe the upcoming decision as a “close call,” noting that while inflation is expected to stay well below 4 percent for several quarters, the central bank must also consider external flows, banking liquidity and long-term stability.

Some institutions, including HDFC Bank and Crisil(Capital market company), expect a 25 bps cut, arguing that low inflation provides the central bank with the space to ease further. Others, such as ICRA and Bank of Baroda, believe the RBI may wait longer, especially with GDP growth exceeding expectations.

Market watchers expect the overall tone of the policy to remain neutral to slightly dovish, with the RBI likely to reassure markets on liquidity and signal the possibility of future adjustments based on how growth evolves.

The final decision will be announced by Governor Sanjay Malhotra on December 5, as India watches whether the central bank opts for another rate cut or continues its pause.